The Bitcoin Halving: what is it?

I've seen a lot of posts referencing the Bitcoin halving, but none that actually explain what it is. I put together this quick read on what it is.

What is the Bitcoin halving?

The halving refers to the moment when Bitcoin's block reward is cut in half. The block reward is the payment made to the miner who successfully adds their block to the ledger, essentially by being the fastest computer to solve a really hard math problem. As a reward, the miner is given a certain number of Bitcoin, known as the block reward. It's important to note that the block reward is new Bitcoin entering the blockchain, and is not the same as the transaction fees that come from each of the transactions in the block.

Why is it important?

The halving of the block reward is they key to Bitcoin's finite supply. By reducing the block reward every so often, the total Bitcoin supply is capped. This is what makes it a deflationary asset. Some cryptocurrencies (like Dogecoin) do not reduce their block reward, and as a result they have an infinite supply (they are inflationary). The total number of Bitcoin that will ever circulate the blockchain is 21,000,000 BTC. Currently there are 19.3 million BTC circulating (though a large portion of this is in inactive wallets and will probably never circulate again).

How often does the halving happen?

Halvings occur every 210,000 blocks. The Bitcoin blockchain is designed to maintain the time between blocks at around 10 minutes. If we do some quick math:

210,000 \ 1/6 * 1/24 * 1/365 = 3.995*

# of blocks \ blocks/hour * hours/day * days/year*

So the halving occurs approximately every 4 years, though this varies because the block time is never exactly 10 minutes. In theory, the block reward will never reach 0 (since half of a number is never 0,) but in practice it is said that the last halving will occur in the year 2140, when the block reward will be reduced to less than 1 satoshi (0.00000001 BTC).

The next halving is expected to occur in late March 2024.

Why does the Halving trigger a bull run?

There have already been 3 halvings, and each one has triggered a bull run the following year.

Bitcoin price before and after first halving.

Bitcoin price before and after second halving.

Bitcoin price before and after third halving.

When the halving occurs, the amount of Bitcoin entering the blockchain is cut in half, and this reduction in supply of new coins leads to an increase in price. Additionally, in the past the halving has been a newsworthy event which draws more people into the cryptosphere, which leads to an increase in supply. Per the law of supply and demand, when supply goes up and demand goes down, price goes up.

This increase in price is "built in" to the way Bitcoin works: when the block reward is cut, miners are suddenly making half as much as they used to for maintaining the integrity of the blockchain. To compensate for this and keep them incentivized, the price increases. Bitcoin miners are also paid with transaction fees, which is a small fraction of each transaction that they keep. When the block reward is reduced to zero, the transaction fees will be the only incentive for miners.

Did I forget anything or get anything wrong? Let me know in the comments so I can fix it (with credit).